The Difference Between an Execution Sale and a Foreclosure Sale

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Properties can be repossessed by banks or other creditors under certain clearly-defined circumstances, which vary from state to state. While the processes of repossession and re-sale differ from one type to the next, the general premise for these repossessions being initiated is unpaid debt.

Two of the most common forms of re-sale for repossessed properties are execution sales and foreclosure sales. While the two operate fairly similarly, there are many differences — including how the process starts, how it proceeds and how it ends.

Below, we’ll define what an execution sale and a foreclosure sale is, as well as point out the major differences between them.

What is an Execution Sale?

An execution sale is also commonly referred to as a sheriff’s sale. These sales auction off properties that have been repossessed due to unpaid debt or other obligations. 

An execution sale can only be conducted after a court has issued what’s known as a writ of execution. That’s why execution sales are often referred to as being court ordered.

During an execution sale, a public auction will occur at a public place, such as the courthouse steps of the municipality in which the property is located. It’s also managed by law enforcement officials in the local municipality, which is why they’re called sheriff’s sales.

Before an execution sale is held, it will be advertised at various online sites and in some local newspapers, with a specific date, time and location for the auction. Any member of the public can attend the auction and bid on the property.

The auction itself proceeds like any other, with the highest bidder becoming the new owner of the property once payment has been satisfied. Generally speaking, the highest bidder will have to pay in cash or have funding already secured before paying for such a property.

These types of sales are rare in Michigan as most creditors and courts follow the foreclosure process, which allows the borrower a redemption interest in the home after foreclosure.

What is a Foreclosure Sale?

As mentioned earlier, some foreclosures will end in execution sales, though not all will. Sometimes, the mortgage company will follow specific procedures that are laid out in their state to obtain possession of a home and then sell it. This is called a non-judicial foreclosure, since it happens outside of court.

Each state has a slightly different rules and regulations for how foreclosure proceedings must occur, and the mortgage company must follow those procedures exactly to finalize the foreclosure.

Every mortgage is referred to as a secured loan, since it uses the actual property as collateral. When the borrower isn’t able to repay the mortgage per the terms of the loan, then the lender has the right to start foreclosure proceedings to repossess the property.

When Can a Lender Foreclose on a Property?

Generally speaking, a lender tries to avoid the foreclosure proceedings. That’s because foreclosures can be expensive, and forces lenders to become property owners, which is outside of their core competency.

When a borrower misses a payment, they’ll typically receive a missed payment notice. Once they miss a second payment, they might be sent a demand letter that advises the borrower of the dangers of continuing to miss payments. The letter may also offer payment arrangements.

Notices of default may be sent in many cases once the borrower has missed payments for 90 days, and this is when the foreclosure process will typically start in earnest. There are different notification timelines and steps the lender must take to satisfy the foreclosure criteria.

There are 22 states where the normal process includes judicial foreclosure, which requires the lender to seek relief from the court system. The other 28 states can use non-judicial foreclosure. This provides a quicker process for the lender to foreclose on the home and re-sell it at auction.

Similarities 

Both execution sales and foreclosure sales are processes that are taken to allow creditors to reclaim unpaid debt quickly. They are completed when a borrower doesn’t pay an obligation that they are legally required to repay — such as mortgage or tax bill.

Both sales will transfer the ownership of the property, and they are typically done at an auction format. Some foreclosure sales actually may end up as execution sales, which are referred to as judicial foreclosures.

Differences

Non-judicial foreclosures can be carried out in 28 states without the need for court intervention. Execution sales, by contrast, can only be conducted once a court has made a judgment that forces the sale.

Because execution sales are ordered by the court, there isn’t much a borrower can do to stop them. In essence, one of the only options a borrower might have to stop an execution sale is to appeal the decision or satisfy the court’s demands.

Non-judicial foreclosure proceedings provide the lender with a shorter timeframe to take possession of the property and sell it at auction. At the same time, the lender will often try to work with the borrower to allow them to avoid foreclosure along the way.

There’s a reinstatement period during the foreclosure process, during which the borrower may catch up with what they owe, find outside financing to satisfy the outstanding amount, obtain a short refinance and have a portion of the loan forgiven, or even obtain special forbearance in the case of a temporary hardship.

In non-judicial foreclosures, the borrower has more options to keep ownership of the property going forward, while they have little control during an execution sale. 

Michigan State Cannabis License Approval vs. City/Municipality Cannabis License Approval

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Cannabis has become big business in Michigan in a very short period of time. While the Michigan Regulation and Taxation of Marijuana Act was passed in 2018, the first sale of recreational marijuana didn’t take place in the state until December of 2019. 

In the first full year of recreational marijuana sale in 2020, overall sales totaled more than $950 million. One year later, that number exceeded $1 billion for 2021, the Marijuana Regulatory Agency reported.

It’s clear that cannabis has become big business in Michigan, and it’s expected to grow at considerable rates in coming years, too. This fact is attracting a lot of people to the industry who are looking to cash in on what is a completely new industry.

If you want to get in on the cannabis sales game, there are rules and regulations you must follow. Below, we’ll discuss cannabis license approval at both the state and municipality level.

Types of Licenses Available

Michigan state law provides for a few different licenses related to cannabis. So, the first step in getting license approval is to figure out which license you want to apply for. 

There are various six different categories of licenses to which you can apply. These include …

  • Grower (Class A): The licensing fee of $1,2004,000 will allow businesses to grow as much as 5100 plants. They can be sold to processors or retail cannabis stores.
  • Grower (Class B): The licensing fee of $6,000 will allow businesses to grow as much as 1,000 plants.
  • Grower (Class C): The licensing fee of $24,000 will allow businesses to grow as much as 1,500 plants.
  • Microbusiness: The licensing fee of $8,000 allows owners to grow as much as 150 plants, then process what they grow and finally sell it directly to legal adults. It’s a way to vertically integrate a cannabis business in Michigan.
  • Consumption establishment: A licensing fee of $1,000 allows people to operate social clubs that welcome people to use marijuana while inside. In most cases, the clubs are restricted to people who are at least 21 years old, and the establishment typically can’t sell alcohol or food.
  • Event organizer: A licensing fee of $1,000 allows organizers to hold temporary events revolved around marijuana. Some of these events have entrants who compete for various prizes, while others are conferences.
  • Temporary event: For a fee, people who hold an event organizer license may hold an event that allows for the consumption and sale of cannabis products. Every day the event is held, the licensee must pay a $500 fee. If cannabis will be sold, then the fee goes up by another $500 per day, plus $500 for every person who’s authorized to sell there.
  • Testing facility: The licensing fee of $25,000 allows for people to open cannabis testing facilities specifically for recreational usage.
  • Marijuana Processor: The licensing fee of $24,000 will allow businesses to process marijuana into its various allowed bi-products such as an oil or edible.
  • Marijuana Retailer: The licensing fee of $15,000 will allow businesses to sell all allowed marijuana products.
  • Marijuana Secure Transporter: The licensing fee of $15,000 will allow the license holder to transport marijuana to other state approved businesses.

One thing to note is that Michigan changed its state law in regard to marijuana licensing. In early 2022, the state dropped a requirement that a licensee must first hold a medical marijuana license to apply for a recreational usage license. Now, prospective license holders can apply directly to receive a recreational license.

How to Get a Michigan State Cannabis License?

Applying for and receiving a Michigan state cannabis license is essentially a two-step process.

Step one is the pre-qualification process. A $6,000 fee must be paid to the State of Michigan Marijuana Regulatory Agency to start the process.

Pre-qualification involves submitting an application to Michigan’s Department of Licensing and Regulatory Affairs. Once that is done, officials from LARA will conduct a background check on all applicants for the license, including both the primary applicant and any supplemental applicant.

If you are approved in pre-qualification, you’ll be allowed to search for a facility where your business will operate. The facility must be fully secured before the second step can be started, which includes applying for the full state cannabis license.

During this step, MRA officials conduct an inspection of your facility. They’ll also examine local laws and regulations, your company’s financial statements and prospectus and information about your employees.

If all goes well, you’ll be approved for a Michigan state cannabis license. To formally get your license, you’ll have to pay the initial licensing fee, which will vary according to the type of cannabis business you’re opening. You also must pay a renewal fee each year to keep the license active.

How to Get a Municipality Cannabis License in Michigan?

Step two in the process of gaining approval for a Michigan state cannabis license is finding and securing a facility for your business. You won’t be able to just choose whatever facility is up for sale or rent, though.

Michigan’s cannabis law allows local municipalities to set their own rules in regard to businesses in the marijuana industry. Some municipalities only allow certain types of cannabis businesses — either medical or recreational, for instance. Others allow all types of cannabis businesses, while some don’t allow any at all.

Generally speaking, if a municipality has laws that allow recreational marijuana facilities to operate, they probably also allow medical marijuana facilities to operate there, too.

The same is not necessarily true the other way around. For example, Acme Township in Grand Traverse County allows for medical marijuana facilities but not recreational marijuana facilities. 

State Laws in Regard to Municipal Licenses

Michigan state law set the parameters for what municipalities were allowed to do in regard to providing for the operation of cannabis businesses within their borders.

First and foremost, the state put it in each municipality’s hands to decide whether they wanted to “opt in” to allowing processors, secure transporters, provisioning centers, growers and/or safety compliance centers to be located there. If a municipality decides to opt in, they must pass an ordinance that not only permits but regulates the facilities.

Municipalities do have some freedom in terms of what they can include in the ordinance, such as:

  • Type: They can authorize multiple types of cannabis facilities or only one.
  • Number: They can limit how many facilities can operate there, and how many of each specific type of facility.
  • Fee: They can charge an additional $5,000 fee to every person receiving a cannabis license.
  • Supplemental ordinances: They can enact additional ordinances that are related to the cannabis businesses, such as zoning regulations that prohibit facilities to be located within a certain distance from a school, for instance.

What municipalities don’t have the freedom to do is set regulations or rules regarding either the pricing or purity of the cannabis being processed/sold in their municipality. They also cannot implement laws and regulations that conflict or interfere with state-level regulations in regard to the licensing of cannabis facilities.

Each municipality may have their own unique application process for receiving a license. So, make sure you contact the local government of the municipality. in which you wish to operate a cannabis facility to get more information.

Michigan Rules and Regulations for Cannabis

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While many states in recent years have moved to legalize marijuana for medical or recreation purposes — or both — Michigan was actually the first one in the Midwest to legalize it on a recreational basis.

In 2018, the Michigan Regulation and Taxation of Marijuana Act was signed into law, which made it legal for most adults 21 years of age and older to use marijuana on a recreational basis. The state had previously legalized marijuana for medical purposes.

There are many rules and regulations for cannabis in Michigan that you need to be aware of if you want to possess, use, cultivate and even sell cannabis legally. Below, we’ll dive into the many different aspects of the state’s cannabis rules.

State-Specific Laws

The first thing to understand about Michigan rules and regulations for cannabis is that they are state-specific. In other words, they only apply when you are within Michigan’s state borders. 

What this means is that even though it’s legal to possess a certain amount of marijuana in Michigan, it’s not legal to do so in all states. So, if you plan on crossing state lines, you need to make sure that you are following all the local rules and regulations where you are traveling. 

Also note that cannabis is considered illegal in all forms by federal law. This comes into play in a number of situations, including domestic travel via airplane as well as obtaining a loan through a financial institution backed by the federal government.

How Much Cannabis Can You Possess in Michigan?

Just because recreational cannabis is legal in Michigan doesn’t mean there are no limits at all. According to state law, adults over the age of 21 are allowed to possess up to 2.5 ounces of marijuana on their person. That limit increases to 10 ounces when they are in their own home.

If you are caught with between 2.5 ounces and 5 ounces of marijuana outside of your home, you could face a civil infraction with a maximum fine of $500 for your first offense. If you are found to be in possession of more than 5 ounces outside your home, you could face a misdemeanor charge with a maximum fine of $500 for your first offense.

What this law means is that you are technically not allowed to purchase more than 2.5 ounces of marijuana at one time, even if you intend to only use it in your home. That’s because you’ll be outside of your home when you transport it from the dispensary.

Where Can’t You Possess Cannabis?

In addition to there being limits in place for how much cannabis you can possess in certain locations, there are also restrictions for where you can’t ever possess marijuana in Michigan.

State law says that no one can possess marijuana within 1,000 feet of a park — or in the park itself. If you are caught doing so, the judge will be able to use their own discretion to decide whether to charge you with a misdemeanor or a felony. The punishment carries with it a maximum sentence of two years in jail as well as a fine of up to $2,000.

Can You Distribute Marijuana in Michigan?

You are allowed to give marijuana to another legal adult in Michigan as long as the exchange meets certain criteria. First, both you and the person you are giving it to must be of legal age.

Second, you must not receive any remuneration, or payment, in exchange for it. In other words, if you are giving a friend who is of legal age some of the marijuana that you have in your home, then it is legal.

Third, the amount that you give to another person must be less than 2.5 ounces.

Finally, you aren’t allowed to transfer the cannabis in public, and you aren’t allowed to promote or advertise that you are giving cannabis away.

If you distribute between 2.5 and 5 ounces of marijuana to another person without remuneration, you’ll be penalized with a civil infraction that carries a maximum fine of $500.

Can you Sell Cannabis in Michigan?

Michigan rules and regulations for cannabis set very clear definitions as to who can and can’t sell marijuana in the state.

All those who wish to do business in marijuana in Michigan — whether for recreational or medical purposes — must receive the proper certifications and licenses to do so. State agencies conduct rigorous background checks and screening of applicants to ensure the operation is legitimate and run legally.  Both state and local licenses are required to sell in a Michigan municipality.

Obtaining a license to sell cannabis in Michigan is not only a long process, but an expensive one, too. Failure to obtain these proper licenses can result in significant criminal penalties.

All illegal sales of marijuana in Michigan are considered to be a felony. The sale of less than 5 kg of cannabis could result in a jail term of up to four years and a fine of up to $20,000. The sale of between 5 kg and 45 kg could result in a sentence of up to seven years in jail and a $500,000 fine. The sale of more than 45 kg could result in a prison sentence of up to 15 years and a maximum fine of $10 million.

Can You Grow Cannabis in Michigan?

Michigan’s recreational marijuana law does allow people in Michigan to grow their own marijuana plants, under certain circumstances. 

An adult is allowed to grow as many as 12 marijuana plants at their own home, as long as the plants are going to be for personal usage.

The plants must not be grown in a place where they can be seen from a public place or outside of a secure area. This means that the plants can’t be grown inside next to a window that isn’t covered by blinds or curtains, nor can it be grown outside if someone else could access the plants without opening a gate or lock, for instance.

If you are found in violation of the rules and regulations as they relate to the location of the marijuana plants, you could face being charged with a civil offense, which could result in a fine of up to $100 and the forfeiture of your marijuana plants.

If you are found to be growing more than 12 but less than 25 plants, you could face a civil infraction that carries with it a $500 maximum fine.

Those found to have 25 or more marijuana plants can face a misdemeanor charge. The term of incarceration can also be imposed in these cases if “the violation was habitual, willful and for a commercial purpose, or the violation involved violence,” according to Michigan’s rules and regulations for cannabis.

Cannabis-related Real Estate Transactions, buying/selling/leasing

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Cannabis-related businesses can be extremely lucrative, but they also bring with them a lot of challenges that businesses in other industries don’t face. Even though both recreational and medical cannabis is legal in Michigan and many other states, for example, setting up shop is not as easy as it is for other industries.

One of the biggest challenges for cannabis-related businesses is landing the necessary real estate to conduct their business. Some building owners simply don’t want to lease or sell to people who run cannabis businesses. Others require the business owners to take out certain insurance policies or pay additional fees and/or higher rents to operate there.

In addition, business owners in the field might have trouble securing a loan to purchase a property. That’s because marijuana is still considered illegal according to federal law, so many large financial institutions won’t lend to those who deal in marijuana — even if it’s legal where they operate. 

For a cannabis-related business to even receive a license to operate in Michigan, they have to get the proper approvals from both the state and the municipality where they want to operate, which can only be done once they have a property secured and there are different ways one may be able to secure a property.

With all this being said, here are some of the main real estate transaction options for cannabis-related businesses, as well as the pros and cons of each.

Property Purchase

A property purchase is the most common form of real estate transaction in the cannabis industry. This includes the company purchasing the facility that they will use to operate their business from a seller. 

There are many advantages to this type of real estate transaction. For one, the cannabis business will retain full rights to the property immediately. They won’t have to check with a landlord to see if it’s OK to operate their type of business, or meet any specific requirements the landlord has.

Second, the property can serve as a major asset for the business, especially after it’s paid off. In this same vein, the payments the business makes toward the purchase price of the property is a direct investment in a real asset, rather than just being dumped into rent.

Finally, purchasing the property provides the owner with potential tax benefits, such as being able to deduct any interest paid or depreciation. 

On the flip side, purchasing a property to operate a marijuana business can be quite expensive. Depending on the type of cannabis business you run, you might need a large warehouse, state of the art equipment and many personnel, which might be more than some people can afford.

Purchasing a property also adds a significant line item to the business’ long-term debt service. As mentioned before, it might also be difficult for cannabis business owners to obtain decent financing for the property, causing them to either seek out alternative funding sources that could come with high interest rates or have enough cash on hand to purchase the property outright.

Lastly, this type of real estate transaction might be limiting in the long run. If the company grows at a rapid pace and needs more space, for example, the business can’t simply finish out the lease and move to a new facility. They would be stuck with a building that they own and might have to sell or expand if able.

Land Agreement

Another option is a land contract agreement. A land contract is an agreement between a seller and a buyer in which the seller will essentially act as the mortgage company. The seller will hold onto the title of the property until the buyer completely pays it off. 

One of the biggest advantages to this type of real estate contract for cannabis-related businesses is that it opens up new possibilities for funding. They don’t have to worry about being rejected by major banks for loans or seek out expensive lending alternatives. 

A land contract  agreement will provide the business owner with the benefits of owning a property, as the payments they make each month will go toward paying off the land contract balance while building equity in an asset. 

The downside to a land agreement is that the seller will hold onto the title for the entire time until the buyer is able to pay off the total balance so the title can be transferred to the buyer.

Another big negative is that these contracts are usually much more stringent than typical mortgages. For example, the buyer may have no leeway at all in repayment terms. If they miss even a single payment, then the seller might have the ability to forfeit the land contract and recover the property from them. This doesn’t provide a lot of protection to the cannabis business owner, should they not have a solid relationship with the seller.

Lease

If property ownership is not in the cards — or is not something you desire — then you could of course opt for leasing your commercial space. This would work just like the lease of any other property. You would come to an agreement with a landlord on the terms of the lease — the length, the restrictions, who is responsible for what, etc. — and then pay an agreed-upon price to rent the space.

There are many advantages to a lease for cannabis-related businesses. First, it doesn’t tie up a lot of cash in an asset that is outside the core business. Instead of being land owners, the business can focus instead on just running the business.

Second, leases provide more flexibility. If the business needs to expand, move or add space elsewhere, the lease likely won’t stand in the way of it doing so. 

Third, most leases will provide coverage for ongoing maintenance. Sometimes, this will cover not only the exterior of the property and building but the interior as well. 

Lastly, leases allow cannabis business owners to not have to worry about securing financing. They can simply use cash-on-hand to pay their monthly rent, instead of trying to secure financing for a large purchase.

The biggest downside to a lease is the business owner doesn’t have any control over the property. They are at the mercy of the property owner in many respects. Rental increases could become prohibitive, and the potential for this to happen provides cost uncertainty.

The property owner may decide to sell at one point, and if the new owner doesn’t want a cannabis-related business to operate there, they may not renew the lease and eventually kick you out.

Finally, cannabis-related businesses might have a tough time finding available property owners who would be willing to lease them a building. As mentioned before, even though both medical and recreational marijuana are legal in Michigan, not everyone wants to be directly, or even indirectly, involved in the industry.